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June 15, 2013 --The developer building a J.W. Marriott in downtown Austin has broken its economic incentive agreement with the city and should forfeit $3.8 million, according to the city staff.

White Lodging, the developer, has refused to cooperate with a city investigation into whether construction workers have been paid less than required in the agreement, according to a letter sent Friday evening from Assistant City Manager Anthony Snipes.

"White Lodging has failed to provide the information necessary to document its compliance of payment of prevailing wage rates to construction workers on the site," the letter reads.

With the construction of the 1,000-room Congress Avenue hotel nearly a year in, it's not clear what happens next. White Lodging representatives secured the incentive package, which waived substantial construction fees, partly by insisting they could not otherwise finance the project, and in exchange agreed to pay a "prevailing wage" to construction workers. But the company and city staff now disagree on what that term means and whether it applies to all construction workers; the company contends the city has reversed an earlier position.

White Lodging has asked the City Council to step in as early as next week and modify the agreement to explicitly reflect the company's interpretation of it. Company representatives say White Lodging was recruited to build in Austin and started construction on the $300 million, 34-story luxury hotel "in good faith based on our agreement with the city manager's office." A statement from company executive Deno Yiankes states that construction will continue under the assumption the city will honor the tax incentives.


The Marriott has become a cause cel?bre of activists who say the city has been unnecessarily offering public money to lure jobs and businesses they contend would come to Austin anyway. The city's economic development office, among others, says that view does not take into account the economic benefits of projects like the Marriott.

Friday's decision follows weeks of back-and-forth between White Lodging and labor advocates who contend the company is shorting its workers. A judge sided with White Lodging and denied a petition this week from Workers Defense Project to depose company officials. Workers Defense had hoped questioning under oath would yield information that would bolster a possible lawsuit.

Then, on Friday, Workers Defense filed more formal complaints on behalf of workers claiming that White Lodging subcontractors were not paying required wages to some of the workers and denying rest breaks to others.

"We should be investing in responsible businesses that treat Austinites right. Not in developers that profit off of unsafe work sites, where workers aren't even allowed to take a water break," said Greg Casar, a Workers Defense spokesman.

They are not the only groups urging the city to conclude White Lodging violated its agreement with the city. The city's Minority Trade Association Alliance has been quietly complaining for months that White Lodging has not been filing the necessary paperwork to prove it is trying to hire black, Hispanic and female subcontractors. City rules require White Lodging to make such efforts, said Paul Saldana, a spokesman for the trade alliance.

"If they aren't making those efforts they should forfeit the incentives," Saldana said Friday.

The agreement

White Lodging representatives say the situation deteriorated at least in part because of unclear terms the city proposed at the tail end of the negotiations.

At the City Council's direction, the city staff solicited proposals for a downtown hotel to serve the Austin Convention Center, whose managers say Austin has lost out on lucrative tourism business because there is not enough hotel space to accommodate many of the large conventions that could otherwise come to the city. White Lodging and city officials spent months negotiating a deal; the city staff proposed waiving $3.8 million in various fees that would otherwise be paid during construction.

In June 2011, the council took up its final discussion and vote on the deal and, amid some negotiating on the dais, Council Member Mike Martinez suggested requiring "the city's prevailing wage policy" -- a requirement, now at the heart of the disagreement, that Martinez crafted in conjunction with the city's legal department.

Yiankes, White Lodging's top official, told the council the company had paid prevailing wages when it built a 1,000-room convention hotel in Indianapolis. But he asked Austin not to add that requirement, suggesting that it typically causes "a slight uptick" in costs. The council added the requirement anyway, and Yiankes did not object further. The council then voted in favor of the deal, though it came in an unusual form: an ordinance that set the parameters of the deal. Under that process, the final details are left to the city staff before a deal is signed.

During that period, Yiankes sent a letter to Assistant City Manager Rudy Garza, who was overseeing the final negotiations, stating that White Lodging could not pay all the workers prevailing wages. White Lodging calculated that paying every construction worker a prevailing wage, as defined by the federal Davis-Bacon Act, would cost the company more than it saved through the $3.8 million incentive package. Yiankes instead proposed to pay an average prevailing wage -- some workers, mainly electricians, would make less, but most other workers would make more because of the state of Austin's labor market.

In an Aug. 16, 2011, letter, Garza endorsed White Lodging's approach, writing, "You are good to go."

Garza has since retired from the city to become a partner in a development firm. He told the American-Statesman he did not think the council intended to wipe out the savings the company secured through the waived fees. He said the council, by suggesting "the city's own prevailing wage policy," seemed to want to mirror the city's wage standard when it hires a contractor -- and the city minimum wage requirements are lower than the federal prevailing wage standards.

"It just didn't make sense, to me, for us to be requiring White Lodging to do something we at the city weren't doing ourselves," Garza said. "Their proposal was better than what the city pays."

But late last year the city staff overseeing the contract began to suspect Garza had issued approvals contrary to the terms the council approved and that, as a result, White Lodging was violating the deal. The local electrical workers union also complained that White Lodging was not paying prevailing wages. The staff began the audit that it now contends White Lodging has not cooperated with. In February, Richard Suttle, White Lodging's Austin lawyer, wrote to council members asking them to stop the audit.

They did not. And if the council does take up the subject, it is likely to be a heated debate: Martinez has said he did not intend for the prevailing wage requirement to negate the fee waivers, while Council Member Laura Morrison has said she will oppose any effort to modify the deal in White Lodging's favor.

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